What Can Malaysia Do About Trump

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Tomorrow, when Parliament meets to debate Malaysia’s response to United States President Donald Trump’s sweeping new tariffs, lawmakers must make clear to the Malaysian public that this is not merely a crisis over our exports to America.
Trump’s trade war poses a serious threat to Malaysia’s economy and to the international order on which our development depends.
A coherent strategy must connect our immediate reactions to long-term national goals.
Brewing global recession
ADSThe US economy shrank by 0.3 percent in the first quarter of 2025, before Trump’s abrupt announcement on April 2 of high tariffs against major US trading partners.
This tariff shock is expected to tip the already sluggish global economy into recession by year’s end.
Although the US temporarily paused tariffs on all countries except China for 90 days starting April 9, that brief reprieve has not stabilised business confidence.
Investment plans worldwide have been shelved amid uncertainty. Without a rapid recovery in capital spending, a significant downturn is inevitable.
It is often said that Trump’s tariffs would not hurt Malaysia much because he would finally keep the tariffs only on China.
His pause on blanket use of tariffs on all countries suggests that he wishes to avoid a disastrous midterm election for the Republican party.
This positive thinking is wrong because the abrupt economic decoupling of the world’s two largest countries (that are equally sized and deeply globalised through long, intricate supply chains) will be enough to push both into recession, and they are Malaysia’s two biggest trade partners.
This positive thinking also misses the point that Trump cares only for himself, not his Republican colleagues, and that his overwhelming desire is a third presidential term.
If a third term does happen, it would have been achieved through non-constitutional avenues.
The “defeat” of China by Trump’s tariffs might be the only national achievement that might give him sufficient political acclaim to proclaim himself US President on Jan 6, 2029, just as he had tried to do once before (unsuccessfully) on Jan 6, 2021.
Malaysia’s exposure to the trade war
Malaysia will experience an economic slowdown in 2025, if not a recession, because its income is highly dependent on exports, which accounted for 77 percent of GDP in 2022 and 68 percent in 2023, which are substantially higher than private consumption, which was 57 percent and 60 percent, respectively.
ADSThere will be a marked drop in Malaysia’s exports to China and the US in 2025 because of the recessions there.
Furthermore, Malaysia’s manufacturing sector would shrink significantly in 2025 if the gargantuan amount of Chinese goods that were originally destined for the US market were to be offloaded in Malaysia and other non-US markets in a fire sale.
Malaysia must explain to China that a fire sale of its goods would trigger tariffs from non-US economies to wall off the Chinese goods, resulting in a Great Wall of Tariffs surrounding China.
China should adopt voluntary export restraints to confine the fire sale to within China, while also undertaking a slew of reforms (eg strengthening social safety nets, cancellation of the hukou system, and legalisation of private medium-sized banks) to boost domestic consumption and employment-intensive small and medium enterprises.
This last point makes it very clear that Malaysia’s optimum response to Trump’s tariffs would require Malaysia not only to undertake domestic measures to deal with the pain of job loss, but also to work with other countries (on several dimensions which I will discuss later).
Domestic reforms must accompany global strategy
Malaysia’s response cannot be reactive or narrow. It must be anchored in reforms that build long-term resilience.
This means temporarily running larger budget deficits to invest in infrastructure and up-skilling programmes, reforming government-linked companies and the monopoly banking system, phasing out low-skilled foreign labour, and dismantling regulatory chokepoints - like the tangle of import permits and rigid educational accreditation systems.
Understanding the trade war’s deeper roots
Trump’s tariffs are only the surface expression of a deeper shift: the unravelling of globalisation’s consensus.
Since Adam Smith’s 1776 insight on the productivity gains from specialisation and trade, economists have emphasised how larger markets raise efficiency and prosperity.
What is clear is that the heart of the US deglobalisation effort is to “punish” China.
This US motivation comes from its perception of China being an unfriendly power (eg being friendly to Iran and North Korea, both deadly US enemies) and engaging in unfair trading practices (eg undertaking active piracy of US intellectual property rights, and having its army spy on US private companies).
The present US-China conflict is an outcome that was implied by a lesser-known insight of Smith in the second part of his 1776 book.
He pointed out that the first three centuries of globalisation, which began with the discovery of the Americas in 1492 and the discovery of the sea route from Europe to India in 1498, had overwhelmingly benefited Europe.
Given the much greater military might of the Europeans, they would gain much more materially by pillaging than by trading.
Smith, however, foresaw a reversal: globalisation, through its inherent dissemination of knowledge, would empower formerly colonised nations to reach parity with the West.
Fall of unipolarity and possible rise of multipolarity
The economic catching-up process could be both painful and prolonged. China’s century-long national humiliation reflects the deep costs involved in crossing this “valley of tears” toward modernity.
Nonetheless, the successful convergence of formerly marginalised nations (notably, Japan and South Korea) through technological diffusion has laid the foundation for a multipolar world.
Convergence, however, breeds conflict. The rise of a large country like China challenges the centuries-long dominance of Western powers.
China President Xi Jinping during his official visit to Malaysia on April 15Trump’s tariffs seek to halt China’s ascendancy - not just in trade, but in technology and strategic influence.
The Epoch of Global Hegemon (United Kingdom in the 19th century and the US in the 20th century) is gone forever, being replaced in the medium-run by the Epoch of Bipolarity (US and China), and, possibly, replaced in the long-run by the Epoch of Multipolarity (when the Indian elephant has lumbered sufficiently high up the ladder of economic catching-up).
Europe might join the ranks of superpowers too, as Trump’s might-is-right worldview seems poised to accelerate and deepen European integration.
The present bipolar world and the emerging multipolar order carry both promise and peril.
Strategic points to guide Malaysia’s response
First, Malaysia must recognise that this is not a bilateral trade issue - it is a structural shift in the global order.
Aligning with the US might bring short-term tariff relief, but would compromise sovereignty and access to Asian markets. This trade-off is unacceptable.
Second, technological diffusion, enabled by open trade, is essential for Malaysian development.
Malaysia lags far behind China, Japan, and Korea in innovation. A prolonged US-China trade war could slash Asean’s access to advanced technologies by up to 40 percent, jeopardising Malaysia’s goal of becoming a high-income economy by 2050.
Third, bipolarity and multipolarity create global instability. The US-China rivalry introduces risks of conflict (the Thucydides Trap), gaps in global leadership (the Kindleberger Trap), and ecological collapse (the Tragedy of the Commons).
Atlantic-Pacific Sustainability Pact: An M’sian initiative
For middle powers, the escalating costs of Cold War 2.0 are becoming increasingly evident.
Proxy conflicts are multiplying, and alignment with great powers often results in diminished sovereignty and reduced access to broader markets.
A viable alternative is for these countries to form an autonomous grouping that functions as a buffer zone. 
Malaysia, as the chair of Asean in 2025, has been given an unusually important historic role in setting in motion the formation of this coalition of buffer states for international peacekeeping.
Asean should not instinctively look to the Global South to build this coalition. It must also avoid unintentionally turning the medium-run epoch of US-China bipolarity into a North-South bipolarity.
To get a quick start on forming this coalition and to ensure that the coalition has unignorable economic weight (and hence gets the respect of the US and China), the first group of candidate states must have:
(a) existing long-time friendly ties with Asean states in economic interaction and cultural exchange
(b) are at least upper-middle-income countries
(c) and have every incentive to be friendly to both the US and China.
Japan and South Korea are natural founding members because they are friendly neighbours of Asean, and they are caught in the uncomfortable position of strong military ties with the US and strong economic interdependence with China.
The Europeans are also natural candidates because of long historical ties (where the Asean elite gets schooled), and because of Nato membership.
By also having the EU and UK as the founding members, this coalition will be neither an Asian regional grouping nor a South-dominated grouping.
Malaysians should therefore mobilise Asean to propose to Japan, South Korea, the EU, and the UK to form the Atlantic-Pacific Sustainability Pact (APSP).
APSP has three core missions.
1) Free trade: Establishing a free trade area based on open regionalism - welcoming both China and the US - to preserve technological diffusion and economic growth; and merging RCEP, CPTPP, and IPEF into this APSP free-trade area.
2) Peacekeeping: Form a nonpartisan peace caucus at the United Nations and all international and regional forums to de-escalate US-China tensions and confront shared global threats like pandemics and climate change.
3) Development assistance: Launch a development aid agency aligned with sustainable development goals to help members reach net-zero emissions, protect biodiversity, and close development gaps. This function would counterbalance the use of development aid by major powers to draw poor countries into their spheres of influence.
These functions would shield middle powers from becoming collateral damage in great power competition.
In 2024, Asean’s population reached 700 million, surpassing the 520 million population of the EU and the United Kingdom combined.
By 2045, Asean’s GDP is projected to equal that of the EU and the UK. When combined with Japan and Korea, the economic weight of APSP members could surpass that of either China or the US individually.
Such a rebalancing of global economic influence would eventually compel both Washington and Beijing to engage with APSP, especially if one were to join before the other.
At that point, Cold War 2.0 could give way not to confrontation but to cooperative multilateralism shaped by a coalition of the prudent.
In short, APSP, by fostering cooperative mechanisms, could accelerate the emergence of a new global governance framework that suits the 21st-century reality of a bipolar/multipolar world. - Mkini
WOO WING THYE is University of California professor emeritus of economics, Liaoning University chair professor, University Malaya visiting professor, and Sunway University research professor. He can be reached at: [email protected]
The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.

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